Politics

Panel to vote on sales tax change

It may move toward cutting property taxes by plugging sales tax exemptions.

By Steve Bousquet, Tallahassee Bureau Chief
Published February 25, 2008

ADVERTISEMENT John McKay argues that special interests have used their influence to carve out exemptions for themselves, leaving a heavier tax burden for low-income people.

TALLAHASSEE - "Big Sam" Mitchell was a living caricature of the old-fashioned Florida legislator, a strapping farmer and successful high school basketball coach who knew how to work the levers of power to help his rural Panhandle constituents.

In 1992, Mitchell persuaded fellow Democrats to promote ostrich farming by classifying the long-necked birds as livestock, like cows. That made ostrich feed exempt from the state's 6 percent sales tax. His 2003 obituary cited the tax break as a signature accomplishment.

Today, no ostrich farms are operating in Florida. But the sales tax break remains law, one of the most vivid - some say nonsensical - examples of a sales tax system riddled with exemptions, many approved years ago and never reviewed.

Those sales tax exemptions, and the exclusion of taxes on many professional services, are the crux of a debate now raging before the Taxation and Budget Reform Commission, the influential 25-member group that can place tax law changes directly before voters in November.

A vote today could determine whether Florida will continue to have a leaky sales tax system for another 20 years or consider significant change.

An 11-member subgroup of the commission meeting in Tallahassee is set to vote on a plan to cut property taxes by $8-billion a year and make up the lost revenue by forcing the Legislature to plug sales tax exemptions and tax some services. If approved, the full commission would then consider the idea for the Nov. 4 ballot.

Would plan cost jobs?

The debate comes as Florida faces its worst budget crunch in two decades, with universities limiting enrollment and judges threatening to close courtrooms to save money - a poignant backdrop, supporters say, for what's wrong with the current system.

"Our job is not to protect narrow special interests," said John McKay, a Bradenton businessman, former Senate president and creator of the tax swap. "The Legislature is not going to get rid of the first exclusion unless the people tell them to do so."

McKay argues that special interests have used their influence to carve out exemptions for themselves, leaving a heavier tax burden for low-income people.

The amount of annual revenue that would be generated from broadening the tax to all services is estimated at $23.4-billion - nearly equal to the $23.5-billion generated by the 6 percent tax itself. That's proof enough that the sales tax base is too narrow in Florida's service-driven economy, McKay says.

Economists hired by the commission argued two weeks ago that McKay's plan would cost 53,000 jobs a year in Florida, a figure McKay and another economist dismiss, saying it doesn't take into account that eliminating one-third of the state's property tax burden would increase disposable income and boost the dismal real estate market.

It's just one of the reasons McKay's success is anything but assured. Florida history and tradition are against him.

It was 2002 when McKay last tried to close sales tax loopholes. As Senate president, he muscled through a similar ballot measure to review sales tax exemptions only to have a suit by business interests remove it from the ballot. A subsequent petition drive also fizzled, making the tax commission McKay's last stand.

Now, some of those same opponents are sitting beside him on the tax commission. The members include eight lobbyists and four members with ties to the Florida Chamber of Commerce, a group strongly opposed to McKay's plan.

'No rhyme or reason'

"Taxing services is not a good idea," said commission member Randy Miller, a lobbyist for retailers and former executive director of the state Department of Revenue. "It does put Florida's economy at an economic disadvantage to other states."

The list of exemptions takes up three full pages in tiny agate type in the official Florida Sales Tax Handbook. It includes airplane parts, boiler fuels, taxicab equipment, newspaper advertising inserts, pesticides, movie theater concession rent and the Golf Hall of Fame. Many of today's legislators are befuddled by it.

"There's no rhyme or reason to what we've exempted," said Rep. Bill Heller, D-St. Petersburg.

Even many business leaders concede that a legislative review of exemptions is long overdue, especially on items such as bottled water, charter fishing boats, farm equipment, printing supplies and professional sports stadiums.

A painful history

But of $12-billion in exemptions, only $4-billion are really eligible for repeal. McKay says he has no interest in discussing ending $8-billion in exemptions for groceries, rent, electricity and prescription drugs, so his plan would require taxing some services.

But taxing services such as lawyers, barbers, real estate agents and advertisers is much different. The state tried that in 1987, only to repeal the services tax eight months later amid a major political backlash. In its place, lawmakers raised the sales tax from 5 to 6 cents.

In the wake of the controversy, several powerful lawmakers lost re-election bids in 1988 and Republican Gov. Bob Martinez was defeated in 1990.

"That was a living nightmare," recalled Rep. Ray Sansom, R-Destin, a young legislative aide at the time who is now poised to become House speaker in November. The memory convinced Sansom to oppose any talk of taxing services.

"The last thing we should do in Florida is create chaos in the business community with an economic slowdown," Sansom said.

Steve Bousquet can be reached at bousquet@sptimes.com or 850 224-7263.

FAST FACTS: 

Tax-free existence

The Legislature has exempted hundreds of goods from the 6 percent statewide sales tax, and most services are excluded entirely from tax, even though the state has a service-driven economy. Here are 10 examples of each and how much money they would have produced for the current year's budget.

Exemptions (in millions)

$71.3Electricity for manufacturing

$63.5Charter fishing boats

$55.3 Boiler fuels used by industries

$42.3 Bottled water

$41.3 Newspaper and magazine inserts

$33.8 Farm equipment

$27.9 Ostrich and livestock feed

$24.7 Free advertising publications

$5.0 Boats temporarily docked in Florida

$0.9 High school and college stadium skyboxes

Exclusions (in millions)

$658.8 Lawyers

$511.1 Architects and engineers

$168.5 Radio-TV broadcasters

$272.0 Accountants

$87.3 Barber and beauty shops

$64.6 Dry cleaners

$52.8 Data processors

$30.9 Health clubs and golf courses

$22.4 Taxis and limousines

$19.5 Athletic and theatrical agents
Source: 2007 Florida Tax Handbook

[Last modified February 25, 2008, 09:39:47]